There are many reasons for co-owning property, of course the most common being in a situation of married couple or long term relationships. In times when it is difficult to buy property, there is also a growing trend for people purchasing together, thereby sharing the cost.
In such situations it is important to think carefully as to in whose name you will register the property and if in both names, how the property is to be held and issues such as who will contribute what to the purchase price, mortgage and other outgoings.
It is highly advisable, in almost every situation where a property is jointly owned by people who are not married or where some money may have been contributed by a relative or friend who will not be the legal owner of the property is to set up a trust deed for the property.
A property trust deed, in addition to protecting money contributed is very useful for many other reasons because it can deal with many other important legal aspects such as where the owners disagree in future about selling the property, liability for the mortgage, what happens if one owner pays towards future improvements of the property and outgoings of the property.
We are highly experienced in drafting all types of trust deeds for property and can offer a practical and cost effective service. Even if a trust deed was not set up when a property is purchased it can be done at alter stage or an existing document varied or new one created when circumstances change. The best time however is at the time of purchase.
It is important to be aware that if both owners are on the mortgage, which is standard, there will be joint and several liability in the event of default. This means the lender can pursue just one of the owners if it so chooses.
It is also worth being aware of what will happen if one of the owners wants to sell but the other does not. In the absence of an agreement on this and set timetable, it would require possibly lengthy and expensive litigation for the party wishing to sell to get a sale through.
With co-ownership, in situations outside of marriage, we always recommend a co-ownership deed between the parties, to deal with issues such as those raised above.
There are two ways to hold the beneficial title to property jointly, each with significant differences.
This is where the joint owners are all equally entitled to the property. This often occurs when the parties want to own it together regardless of who paid the purchase price or who pays the mortgage.
Under this joint ownership when one of the owners die, their interest passes automatically to the surviving owner(s). So for example, if there were two joint tenants, then the surviving owner would now become solely entitled to the property.
This means that a joint tenant cannot pass their share of the property through a Will to other members of their family, it can only pass on their death to the surviving joint owner.
It should be noted that whilst it is considered ‘outside’ of their estate on their death, since it passes to the joint owner, it is still considered part of the estate for potential Inheritance Tax purposes.
This is where the property is held in specific proportions, which may or may not be equal. If the parties wish to hold the property in unequal proportions it is necessary to draw up a Declaration of Trust setting out the proportions each party is to have in the property. If it is to be equal, then on registering the property you can simply state that the property is to be held as tenants in common and it will be assumed that it will be in an equal split.
In this case, if one of the joint owners dies then their share will form part of their estate and will pass to the person stated in their Will, or the appropriate person under the intestacy rules if they left no Will.
If only 1 name was put on the title and there is no declaration of trust, it will remain in their name, unless the other party can show that there was an agreed intention that both parties were to be entitled to a share in the Property.
The best way to evidence this would be by a co-ownership agreement (otherwise known as a declaration or deed of trust) in writing, or alternatively if the unnamed party can show that they directly contributed to the purchase price.
Additionally, if that party can show that there had been a verbal understanding between them and the named owner, where as a result of such understanding they acted to their detriment – such as by paying towards the mortgage or other outgoings or improvements to the property then a court may find an entitlement to some equity share of the property.
If you need legal advice on co-ownership, either before buying or perhaps you need to get a co-ownership agreement in place or have a dispute about selling with a co-owner, we are highly experienced.
What is a trust for sale?
A trust for sale is the legal presumption that, where there are co-owners of a property and one party wants to sell, the property will be sold. The presumption can be challenged and set aside, but this almost inevitably means expensive litigation, which should be avoided.
The best way to set aside the presumption is to have an express declaration of trust, setting out what should happen if one of the owners wants to sell. Other options include buying out the party who wants to sell, with a mechanism, in term of timing and possibly also valuation mechanism.
Another vital clause to include in a property co-ownership contract is a cross indemnity clause to cover the situation where there may be a default in payment of the mortgage, the property has to be sold, there is negative equity, and the lender is still owed money even after sale.
In that situation, the lender may opt to legally go after either of the borrowers or both. If the lender only pursues 1 of the owners, that owner should have the right to be indemnified (to be reimbursed) the appropriate share attributable to the other owner which has been paid to the lender.
Get in touch with us if you need advice on any aspect of property co-ownership, whether you want a trust deed (co-ownership deed/declaration of trust) drawn up, have a dispute over co-ownership or any other property law issue.